Resolution 2334: End of Israel’s middle class?

Per square meter, home prices in Israel are among the highest in the world, and home ownership is the biggest factor in inequality in Israel.

By BY GIDON BEN-ZVI

January 17, 2017 21:20

3 minute read.

BULIDINGS ARE SEEN under construction in the settlement of Ma'aleh Adumim [File].
(photo credit: REUTERS)

Little noted in the media firestorm surrounding the passage of UN Security Council Resolution 2334, commanding Israel to stop all settlement activity, are the potentially deadly ramifications for Israel’s struggling middle class. With one vote, the UN outlawed most Israelis’ only way out of living from paycheck to paycheck.

Per square meter, home prices in Israel are among the highest in the world, and home ownership is the biggest factor in inequality in Israel. As such, Israel’s middle class is gradually vanishing. Despite Finance Minister Moshe Kahlon’s best intentions, including a proposed “third apartment tax” to fight the proliferation of apartments owned by the rich, the real estate bubble continues to expand.

As a result, home ownership rates are dropping. According to data published by the Central Bureau for Statistics (CBS), between 1997 and 2015 there was a decrease in the number of people who own their homes, from 70.2% to 67.6%.

Due to the high cost of living and lower salary levels in Israel, most families are unable to save up the roughly 30% required as a down payment on a home. In the past year alone, according to one estimate, prices rose by 9%. The result is an Israeli society where financial benefits tend to go to those who already have capital. Such a situation up-ends the very notion of social mobility as a ticket to a better life in a market-based economy.

However, CBS data may also point the way out of Israel’s crippling housing crunch. The CBS finds that there has been less settlement construction under Prime Minister Benjamin Netanyahu than under any of his predecessors.

In addition, 75% of population growth in the settlements during Netanyahu’s premiership has been concentrated in the major blocs, which will likely remain under Israeli sovereignty no matter the final contours of an Israeli-Palestinian peace agreement.

Another noteworthy stat: virtually all population growth in the West Bank during Netanyahu’s administration has occurred as a result of “natural increase,” not people actually relocating to settlements.

As such, new low-cost housing over the Green Line could be a boon for Israel’s stressed-out middle class, especially if the Israeli government were to invest in public transportation infrastructure that would ease access between West Bank homes and workplaces located in the center of the country.

Beyond building more affordable housing in the largely unpopulated sections of Judea and Samaria, another key factor in Israel’s construction crisis is the state monopoly on land. Shockingly for a developed market economy such as Israel’s, over 90% of all land is owned by the state or public agencies, and is administered by the Israel Land Authority (ILA).

This monopoly is the reason that at least 50% of the price of building a home in Israel is tied to land cost, whereas the figure in the US is approximately 20%.

While a combination of Israel’s small size, growing population, commitment to the absorption of immigrants, Zionist ideology and security needs has been used to justify the principle of national ownership, skyrocketing housing prices have increasingly put the ILA in the crosshairs of an outraged Israeli citizenry.

Even though Israel and China recently agreed to allow some 6,000 Chinese construction workers to come and work in Israel, this is but a stop-gap measure. Ultimately, nothing will do more to reduce the price of housing than investing in construction in Judea and Samaria and finally solving the land reserves and state monopoly issues, starting with the dissolution of the Israel Land Authority.

Such bold moves would allow market forces to dictate price.

Since the backbone of any healthy democracy is the viability of its middle class, Israel today is in dire need of strong, clear-eyed leadership to turn back the tide of rising home prices.

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